How the VC game works

I reported in my recent feature on Kleiner Perkins that Miasole, a solar-panel company in Silicon Valley, was in the process of raising around $200 million at a valuation in the neighborhood of $1 billion. That turned out to be a conservative estimate. I’ve since heard authoritatively (though not from KP or Miasole) that the company completed its financing for about $250 million at a pre-money valuation (that means not counting the new cash) of $1.2 billion. To spell this out slowly and carefully, this means that Miasole, which has yet to start selling its product, is worth $1.2 billion before its cash injection. This is Miasole’s fifth round of financing, and its investors surely hope it’ll be the last before its IPO.

As I said, Miasole hasn’t commented on its funding yet, but one of its investors has. The steel company ArcelorMittal announced it has launched a clean technology fund and that its first investment is a $20-million stake in Miasole. Steel companies are massive polluters, of course, and ArcelorMittal operates globally. Promoting cleaner sources of electricity surely is in its interests.

What’s more interesting is if ArcelorMittal will ever make any money on its investment. Despite being pre-revenue, Miasole will already by in IPO mode with its banker, Morgan Stanley (MS), pushing valuations that are comparable to the relatively few solar-panel success stories in the market, like First Solar (FSLR) and SunPower (SPWR). Should Miasole succeed in going public in 2009 or 2010, the only big winners will be Kleiner Perkins and other early investors – unless the public valuation is significantly above a billion dollars.

Venture capital is about many things. They include stock promotion. VCs go to conferences, evangelize, meet with bankers, recruit employees with dreams of stock options and promote, promote, promote until the IPO can pay out for their investors. The IPO game may be off right now, but it won’t stay that way.